Laying the Groundwork for a Manufacturing Renaissance

March has been a lively month for news about the revitalization of US manufacturing.

First came a Harvard Business Review article by GE CEO Jeffrey Immelt on “Sparking an American Manufacturing Renewal.” Second was President Obama’s announcement in which he proposed spending $1 billion in 2013 to build a National Network for Manufacturing Innovation that would kick-start US manufacturing. (Ironically, he made the announcement at a Rolls Royce North America aviation facility. Rolls Royce is a British company.)

These two “stakes in the ground” to rejuvenate US manufacturing come on the heels of a four-day conference in February where the captains of industry addressed US competitiveness, or the lack thereof, and what to do about it. At the conference, Immelt announced that GE would hire 5,000 US veterans over the next five years, invest $580 million in its aviation business, and build or rebuild 16 plants in the US.

It seems the tide is turning on outsourcing, which has been the conventional wisdom for US business now for well over a decade. Is this the dawn of a manufacturing renaissance?

Of course it’s too early to tell, as rebuilding the US manufacturing base will take years if not decades. The economy has shifted from close to a quarter of the workforce involved in manufacturing in the 1980s to about 10 percent today.

Still there’s momentum behind the rhetoric. For one thing, it’s an election year, and President Obama needs a jobs creation plan he can tout on the campaign trail. At the same time, there’s a business argument to be made for bringing manufacturing back home.

China’s labor costs have been increasing steadily over the last few years, which means outsourced production costs for US companies have been rising. As Immelt wrote in his HBR article, “outsourcing that is based only on labor costs is yesterday’s model.”

At the same time, oil prices have been climbing, which means transportation and logistics costs are going up. These two cost factors alone have investors asking pointed questions of corporate management about manufacturing strategy.

Immelt’s article cites three factors necessary to make US manufacturing globally competitive: 1) enhancing in-house innovation capability (this means hiring innovators such as designers and engineers); 2) investment in research to predict consumer trends; and 3) building IT infrastructure.

He points to his company’s recent $40 million datacenter investment and a multiyear IT project at GE Appliances as examples of the importance of that third factor. The datacenter will replace more than 330 systems across the business and create 1,000 jobs in the United States by 2014, he writes.

Then there’s the geopolitical argument for investing in US manufacturing. The speed of China’s transformation from a low-cost manufacturing center to a design and product innovation center has taken many foreign companies off guard. This evolution -- coupled with the government’s industrial policy and an attractive exchange rate for its currency, the RMB -- puts China is a position to achieve a competitive advantage in a variety of markets from smartphones to medical devices to wind turbines in the coming years.

Obama is proposing something close to industrial policy with his National Network for Manufacturing Innovation. The program includes government investment with academia and industry for applied research in new technologies, including establishing up to 15 innovation centers across the country. Each center would facilitate collaboration among local companies, universities, and state and federal agencies. Those agencies include the Department of Defense and Energy.

No doubt the combination of economics and politics will mean a renewed focus on US manufacturing. But is it a renaissance? We’ll know in a couple decades.

@zerox - Though I usually agree with you, I cannot in this topic. I think we got off the issue we were duscussing.

We are trying to create jobs as well as bring manufacturing back to the usa. People, in times like these, go where the jobs are. Whether they want to or not. The issue was to train them at the same time what to train is being decided.

"You don't think as the young generation has families that they won't go where the jobs are?"

@fbpmt, sure, but think about what that really means. Because they have to provide for their families, they may be forced, indirectly, to take jobs that they wouldn't if they had less responsibility or under ideal conditions. For real people in the real world, Anything is better than unemployment or underemployment, and these jobs would be a godsend to people going through a tough time right now. However, it raises the question of whether we consider putting people in this position in the first place and then fixing it like this constitutes a job well done as a society.

That takes us to some pretty subjective, ideological questions about quality of life outside the realm of business sense, so this might not be the best place for that discussion - But essentially, I'm not convinced this kind of growth constitutes the restoration of the 'American Dream' for jobs in the big scheme.

The workforce is a huge problem, but it exists because of a web other issues that got us into this position in the first place, which we'll have a tough time solving. If we have a lack of skilled machinists, it's because we can't convince anyone being a machinist is a trade worth learning. Some might say it's because today's kids are lazy and don't want to do real work (which there's some truth to), but in fact it's also because they're more educated - they know that no matter how hard they work at a trade like that, there's someone that did less and made more, often through unscrupulous means - say, at a big financial company. That's something that their parents may not have known (at least not on the same level), which contributed to their strong work ethic - which is a great virtue regardless.

Even if these jobs become legitimate professsions that can earn a great living, and have plenty of job oppurtunities, that problem will still linger - it's unlikely we'll bring up a generation of satisfied, skilled laborers in this climate. When I look at it in those terms, I'm not even sure we want to.

This is one of those topics where I see conflicting reports depending on where I look. 'Reshoring next big trend' followed by 'Previous theory on reshoring debunked' followed by 'Don't listen to that guy'. 'Laying the Groundwork' seems like an excellent choice of words to me, because that's the reality of it - we really won't know for a while yet. If we want to get serious about making it happen, then we need to continue to take a long view of the situation and make choices that will spark growth later on.

Although, I'll be the first to admit that 'do we want to get serious about it?' is a question worth asking. Of course, any job is better than unemployment, but if we're talking about one's self, do you really want your bright future to be a manufacturing job ten years down the road? Somebody has to do the job, but in terms of economic growth, it might just be a bigger band-aid than the cheap ones we're using now, and still not all that much to get excited about.

Immelt's article cites three factors necessary to make US manufacturing globally competitive: 1) enhancing in-house innovation capability (this means hiringinnovators such as designers and engineers); 2) investment in research to predict consumer trends; and 3) building IT infrastructure.

I am not in US, but there is a general perception that US excels in all of the above factors. But are these really all enough to achieve the global manufacturing competitiveness?

David, I tend to disagree. Once the major direction is established, both sides can go off and do their thing. The Saturn car experiment comes to mind whereby they used synergism and included marketing with operations and manufacturing. It is doable!

Well, I suppose it depends on the industry. But it isn;t like we don't know how factories work. They just aren't here. We know the labor force we need, and we know some needs aren't met. If you build a shiny new factory (or rebuild an old one) you don't want it to sit empyt while you're training workers.

Of course, there is a chicken and egg problem here. you don't want to train workers for jobs that don't exist. This is one of the problems we're going to have in re-building manufacturing here.

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